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As life insurance serves as an important safety measure for the families of those who are deceased, unfortunately, many life insurance claims in the US get rejected or put on hold each year, causing grief for their families and leaving them in unexpected financial difficulties. Knowing the common reasons of life insurance denial can help one avoid making costly mistakes and ensure that their plan provides them with enough protection.
This article highlights the reasons why many of these claims fail to pass the scrutiny of insurance companies and how to prevent such outcomes. 10 Reasons for Life Insurance Claim Rejection
1. Misrepresentation / Non-Disclosure in the Application (Most Common Cause)
The most common reason for a life insurance claim rejection is finding misrepresentations or omission in the policyholder’s answers to the questions asked in the initial application form.
Examples of these include failing to inform the agent about smoking, pre-existing illnesses (hypertension, diabetes, cancer, psychological problems), underreporting height or weight, and failing to mention risky or dangerous habits.
Contestability Period: In many cases, life insurance policies feature a 2-year contestability period. Within this timeframe, in case of a death of the insured, the insurance company can reject a claim and return the money already paid as premiums.
How to prevent it: Be 100 percent truthful in your answers and don’t worry about higher premiums. It’s better to pay an extra $50 than have your beneficiaries get nothing.
2. Suicide During the Period of Exclusion
One of the main clauses in a life insurance policy is the suicide exclusion – in case of taking a life intentionally within the first two years of a policy’s purchase, any claims will not be considered and the premiums returned.
How to prevent it: While in most cases it doesn’t matter, it can serve as an incentive to take care of yourself and address any psychological issues with the help of a professional.
3. Death Due to Participation in Certain Activities/Professional Occupation
Another reason why claims may be rejected is the death caused by participating in any activities prohibited within the scope of the policy terms. Standard prohibitions can include:
Any participation in criminal activities
Acts of terrorism or war
Being a pilot (commercial aviation)
Some extreme sports without prior permission
How to prevent it: Make sure to inform the company about your occupation and activities, and ask them about any possible solutions.
4. Policy Lapse Due to Non-Payment of Premiums
If at the time of a death there were no active insurance plans for you since the previous premium installment was not done, there’s no insurance protection whatsoever.
How to prevent it: Automatic monthly bank drafts or credit card payments and updating your personal information will eliminate risks of lapses in coverage.
5. Beneficiary Problems/Disagreements
There are many instances where problems arise due to improper designation of beneficiaries – a lack of one, naming deceased relatives or a wrong individual, and disputes with other relatives (ex-spouses, children).
How to prevent it: Regularly review your policy and name beneficiaries and their contingencies after important life events.
6. Death due to Pre-Existing Condition
Even after the contestability period passes, the insurance company will thoroughly examine any evidence that might reveal some conditions which could’ve been avoided if reported.
Prevention: Give out a thorough medical record and inform the agents about any health problems or risky behavior.
7. Criminal Activity or Other Illegality
Death occurred as a consequence of criminal activity or commission of a felony can lead to denying the claim.
8. Lack of Insurable Interest of Beneficiaries
The insured needs to have a substantial emotional or material interest in the beneficiary to whom the claim is to be issued. It’s used in STOLI schemes and is highly unlikely to apply to your situation.
9. Fraud/ Stale Claims
Claiming a policy after many years since the date of death or submission of false documents are almost sure ways to getting a rejection.
10. Application Problems
There are several common issues related to applications that can lead to claim rejection:
Application form was not signed properly / accepted by the company
Policy was purchased but premiums weren’t paid
Significant changes in health were not mentioned in the final document
How Does a Company Verify Your Claim?
In case a claim was submitted by the beneficiaries, the insurance company is likely to do the following:
Study the medical records and application
Interrogate the relatives, friends and/or doctors about the insured
In rare cases, order an autopsy
Verify prescriptions and toxicology reports
What to Do When Your Claim Is Rejected
1. Carefully read the denial letter
2. Get a detailed explanation from the company
3. Gather all necessary documents and medical records
4. File for a formal appeal with the evidence
5. Contact a specialist for professional advice
Many of the denied claims are successfully appealed and eventually approved.
How to Lower the Chance of Getting Your Claim Rejected?
Purchase from reliable and highly-rated companies (at least A-AM Best Rating)
Use services of a professional independent broker
Be as honest as you can
Keep records of medical appointments and exams
Set automatic payments of premiums
Regularly check on your policy
Real-World Examples
A 42-year-old man in Florida lost his $1m claim over failure to report occasional cigar smoking – only a premium refund was provided to his family.
A couple of 30-year-olds won a case after providing more evidence proving their husband died of heart disease.
Conclusion: Prevention Is Much More Effective than Fighting
While most of the claims are easily approved and paid promptly, in cases when they get rejected there’s usually a simple mistake made in the early stages of buying and signing your plan. Avoiding these mistakes in your application and being attentive to your coverage will minimize risks for future complications.
Don’t assume that your policy is safe. Spend time reviewing the current insurance plan and checking your application answers.
FAQ
1. What is the reason behind the most life insurance claim rejections?
Misrepresentation and omission of medical information in the application.
2. Is it possible to deny a claim after the contestability period?
Yes, but in most cases there should be proof of fraudulent behavior.
3. What happens if a life insurance claim is denied?
The claim is refused and the policyholder gets a refund.
4. Does suicide void a life insurance policy?
For sure, if it’s within 2 years of the policy’s existence.
5. How long should insurance companies pay upon a claim receipt?
Typically 30-60 days after gathering necessary documentation.
6. Is it possible to change something in your application?
Certainly, but it might lead to underwriting.
7. Should I tell the doctor everything about myself during a health exam?
Absolutely, this will prevent further problems with beneficiaries in case of a refusal.
8. Do cheap life insurance policies have high denial rates?
Mostly yes, since they are characterized with lack of underwriting.
9. Where to look for financial rating of my insurance company?
Check A.M. Best/Moody’s/S&P ratings – companies rated above B+ are the best choice.
10. Is it worth appealing a denied claim?
Definitely yes – many initially rejected claims are later paid off.